No Taxation Without Representation

While many in Japan watched helplessly as the U.S. teetered on the brink of a default, one former senior Japanese official spoke out against the lengthy U.S. political drama, by flipping some Tea Party logic on its head.

Bloomberg News

Takehiko Nakao, president of the Asian Development Bank, speaks at a news conference at the Japan National Press Club in Tokyo, on July 17.

Pointing out that people in other countries are affected by developments in Washington, Takehiko Nakao, president of the Asian Development Bank and former Japanese vice finance minister, channeled a famous slogan used by Boston Tea Party protesters to criticize the political deadlock over the U.S. budget deficit ceiling.

“The global economy, global finance and global politics are so influenced by American policies, and yet we don’t have a vote,” said Mr. Nakao, at a press conference at the Foreign Correspondents Club of Japan. “It’s like taxation without representation,” he said, playing on the protest phrase “No taxation without representation” used by settlers in America seeking independence from the British empire in the 18th century.

“The U.S. policy debate is often dominated by domestic concerns, instead of international concerns. This is a serious issue for the world,” said Mr. Nakao, who was on his way to the bank’s headquarters in Manila, after attending an International Monetary Fund meeting.

While the last-minute deal has given months of breathing space to find a wider solution to the debt ceiling impasse, many people in Asia continue to fear the implications that could come with failure to settle the matter.

A near-term U.S. default could paralyze the global financial market since Treasurys are used as collateral for many financial transactions. A sharp drop in Treasury prices could reduce the value of Japan’s external assets, possibly undermining Japan’s own creditworthiness. Heightened credit concern could also send the safe-haven yen higher, hurting Japan’s economy more directly.

Mr. Nakao is known in Japan as an outspoken civil servant since his days as Japan’s top currency diplomat between 2011 and 2013. In January, Mr. Nakao went on the record to counter criticism of Japan engaging in currency market manipulation with its aggressive monetary easing. However, his latest remarks stray far from the play-it-safe logic of most Japanese officials, who tend to respect diplomatic protocol and refrain from criticizing other countries openly.

Among other examples of U.S. policies impacting Asia, Mr. Nakao cited the future tapering of monetary easing by the U.S. Federal Reserve. Fed chairman Ben Bernanke hinted in May that the Fed could begin winding down its monetary stimulus soon, sparking an outflow of capital from emerging Asian economies and sending shockwaves through the region’s markets.

Mr. Nakao pointed out that the world economy depends on the dollar, even though its supply is controlled by the U.S. central bank, over which the rest of the world has no control. The shortcoming of this arrangement became clear when the Lehman shock led to the drying up of dollars in Asia and a seizing up of the region’s financial system, he said.

“It’s like English,” Mr. Nakao said, explaining why the dollar has become so entrenched in the global financial system. “I use English not because I like it, but because I’m obliged to use it.”

He called for the greater use of local currencies, such as the yen and the Chinese yuan, whenever possible for cross-border transactions, though he acknowledged “there’s no panacea” for the problem of over reliance on the dollar.

He also called on policy makers in the U.S. to take into account the price paid by other people in the world for political actions they have no control over.

“We should encourage the U.S. to consider the spillover effects on other countries of their policies” through forums such as the Group of 20 industrialized and developing economies.

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